Governor Paterson has a gift for Mayor Bloomberg in his proposed budget: more than $50 million a year from the under-tapped resource that is the city’s co-op housing market.
In the governor’s cross hairs are loans for co-ops, which have long been free of taxation while taxes on equivalent condos and houses run between 2.05 percent and 2.175 percent of any mortgage. The budget seeks to allow the city to slap this mortgage recording tax onto co-ops, swinging the tax lasso around a cash source that has been eyed-but untouched-by city officials since at least the days of Ed Koch.
The tax would mark another step in the assimilation of the co-op, an outlier housing type that was once beyond the reaches of many housing rules and laws, and it would bring in, by the mayor’s count, at least $50 million annually in revenue for the city.
For the Paterson administration, the current lack of a co-op mortgage tax is merely a “loophole” in need of closing. “Ultimately, this is an issue of equity and tax fairness,” said Matt Anderson, a spokesman for the state’s Division of the Budget. “Financing statements for co-ops are functionally equivalent to traditional residential mortgages, but because of a loophole in the current system, they are not subject to mortgage recording taxes.”
Needless to say, co-op owners aren’t thrilled. “Obviously, we’re very unhappy with it,” said Arthur Weinstein, a co-op attorney and the vice chairman of the Council of New York Cooperatives and Condominiums. “In effect, it reduces the value of every co-op in New York City.”
Recording taxes do not currently apply to co-op mortgages because they are, in actuality, not mortgages at all. Officially, a co-op buyer purchases shares in a corporation that owns a building, not a specific piece of real estate. Thus, a buyer cannot get a mortgage on property, but rather a loan backed by shares of the building.
Those in the co-op world say a new tax will upset the market for co-ops, which the recession has already rendered fragile. They also contend that the tax, as proposed, appears to apply to all refinancing as well as new loans, potentially placing a fresh burden on existing owners who aren’t even looking to sell.
Prices on co-ops have indeed slipped recently, with average Manhattan sales prices more than 16 percent lower at the end of 2009 than they were in early 2008, according to appraisal firm Miller Samuel. A new tax-amounting to $13,000 for a $600,000 mortgage, for instance-would clearly be unwelcome for a would-be buyer, likely depressing prices as the added costs are factored in.
BUT EVEN AS THE co-op lobby is displeased with the governor’s proposal, it’s not clear that the industry is up for a battle with the Paterson administration.